Stop Overpaying Taxes on Rentals: Cost Seg Strategies with CSSI’s Paul Correa & Belinda Prattis
Show summary
The conversation focuses on tax strategies for property owners, particularly emphasizing the importance of bonus depreciation and its applicability to various types of real estate investments.
Key takeaways
- With 100% bonus depreciation back, cost seg studies now make sense even on small $100,000 rental properties, up through $100 million properties.
- If you missed doing a cost seg study in a prior year (even 2020, the original 100% bonus depreciation era), you don't need to amend past returns; a Form 3115 change of accounting method lets you capture the missed benefit in the current tax year.
- You just need to complete the study before the relevant tax return is actually filed, which with extensions could be as late as October of the following year.
- CSSI offers a free, no-obligation estimate using just property address, cost basis, and acquisition date, based on a model built from roughly 10,000 completed apartment building studies.
- The CSSI process: half payment upfront, collect backup docs (appraisal, survey, plans, tax assessment, depreciation schedule), send someone to photograph the property, then an engineering team classifies building components into depreciation buckets (5, 7, 15 years). Turnaround is typically 2-4 weeks, longer (5-6 weeks) in January during tax season rush.
- CSSI uses the engineering-based approach, which the IRS audit technique guide lists as the preferred, lowest-risk methodology (one of nine listed); do-it-yourself/estimate-based cost seg carries higher audit risk and captures less benefit.
- Cost seg applies across virtually all building types CSSI has worked on studies for charter schools, churches, post offices, and airplane hangars, so building type is rarely a disqualifying factor.
- Developers who plan to hold ground-up construction (subdivisions, single-family or townhome portfolios) should look at both cost segregation and Section 179 if they intend to hold rather than sell.
In this episode
- 02:00Introducing Belinda Prattis and Paul Correa of CSSI
- 02:26How Paul and Belinda got into cost segregation
- 05:17Who should be doing cost segregation now
- 06:49Is it too late if you bought the property years ago?
- 08:07Why most investors don't know about cost seg
- 10:55Getting a free estimate and how the process works
- 12:51Developers, ground-up construction, and Section 179
- 14:09Regional awareness differences across the country
- 15:51Engineering-based vs. do-it-yourself cost seg methods
- 17:29Step-by-step timeline of a cost seg study
About the guest
Paul Correa has worked in cost segregation for 21 years and is a cost seg advisor with CSSI Services; he is also a real estate investor himself and has had a cost seg study done on his own property. Belinda Prattis is a cost seg advisor with CSSI who previously worked as a transaction coordinator for creative investors and was a regional leader for the Northeast region at Top Tier TC before moving into cost segregation; she is based in Albuquerque, New Mexico, where she says she is currently the only cost seg provider in the state.
Listen to the audio
“It may have wiped out my 2025 tax liability. And then they do it routinely and they tell their friends about it, too.”
Paul Correa
“It's always better to have a dollar and the use of it today than in 39 years when a dollar is going to be worth much less.”
Paul Correa
“As one of my CPA partners said, shortcuts are the long cut.”
Paul Correa
“I would say nine out of ten investors that I worked with were not aware. And that's a pretty alarming rate.”
Belinda Prattis
Questions answered in this episode
Is it too late to do a cost segregation study if I bought my property years ago?
No. Paul Correa explains you can take the missed depreciation benefit in the current tax year without amending past returns, using a Form 3115 change of accounting method. For example, a property bought in 2020 (the original 100% bonus depreciation era) can have that benefit captured and applied to a 2025 tax return, as long as the study is done before the 2025 return is filed, which could be as late as October 2026 with an extension.
How small does a property have to be before cost segregation stops making sense?
Paul says with the new 100% bonus depreciation, cost seg is working even on small $100,000 rental properties, while on the large end they handle studies on $100 million properties. The main requirements are that the owner has a tax liability, isn't planning to sell or flip the property, and hasn't owned it more than about 25 years.
Can I estimate my cost seg savings before committing to a full study?
Yes. CSSI runs a free estimate with no cost or obligation using just the property address, cost basis, and acquisition date. The estimate is based on a model built from roughly 10,000 apartment building studies they've completed, giving a ballpark on both the benefit and the fee before you decide to move forward.
What does the actual cost segregation study process look like?
CSSI takes half the payment upfront, collects whatever backup documentation the owner has (appraisal, survey, plans, tax assessment, depreciation schedule), sends someone out to photograph the property, and gets the cost basis less land value. An engineering team then classifies the building's components into different depreciation buckets (5, 7, 15 years, etc.). The report is typically done in two to four weeks, though it can take five to six weeks in January when demand spikes before tax season.
Will a cost segregation study trigger an IRS audit?
Paul says CSSI rarely has IRS issues because of their size and the fact that they use the engineering-based approach, which the IRS audit technique guide lists as the preferred methodology out of nine listed approaches. He warns that do-it-yourself or estimate-based cost seg methods carry much higher audit risk and don't capture the full benefit, calling them a 'long cut' rather than a shortcut.
Why doesn't my CPA tell me about cost segregation?
Paul notes the Journal of Accountancy states CPAs should routinely recommend cost segregation to clients given the tax benefits, but many smaller investors stick with an enrolled agent or small accountant who never raised it. He also points out there's been an average of one tax code change per day over the last 10 years, making it hard for CPAs to keep up, even though he thinks they should be willing to get educated on it.
Resources and links
- Belinda Prattis on Instagram
- Belinda Prattis’ Email Address: belinda.prattis@cssiservices.com
- Belinda Prattis’ Phone No: (410) 977-8878
- Paul Correa’s Email Address paul.correa@cssiservices.com
Full transcript
Paul Correa (00:00)
Yeah, I mean, sometimes people know a little bit about it, some of which may or may not be accurate. But, you know, when people are confused, they just don’t do anything, right? from my experience, once people do this one time, they realize, you know, that’s a very simple process. It had a massive impact. It may have wiped out my 2025 tax liability. And then they do it routinely and they tell their friends about it, too. So that’s
Belinda Prattis (00:03)
Okay.
This is true.
Okay.
Dylan Silver (02:00)
Hey folks, welcome back to the show. Today’s guests, Belinda Prattis and Paul Correa are Cost seg advisors with CSSI Services. Belinda and Paul, welcome to the show.
Belinda Prattis (02:14)
Dylan, thanks for having us.
Paul Correa (02:14)
Thank you. Good to
be here.
Dylan Silver (02:16)
It’s great to have both of you all on here. I always like to start off at the top of the show by asking guests how they got into real estate. In your case, how did you get into the cost seg?
Belinda Prattis (02:26)
Paula, I’ll let you go first.
Paul Correa (02:27)
Yeah, I’ve been doing this 21 years. Cost segregation at the time was kind of a brand new thing. I remember people back then thought it was some kind of a big, scary, weird thing. it was a bit of a challenge then. today it is fairly routinely done. But it just has been a great opportunity. It’s a wonderful niche. We estimate there’s about 6 million people out there that should be doing this that are not.
It just has been a really good thing. I do this personally. I’m an investor myself and have done this on a property of my own.
Belinda Prattis (03:02)
Yep.
Paul Correa (03:03)
And Belinda,
Dylan Silver (03:03)
But Linda,
how did you get into this place?
Belinda Prattis (03:05)
I’m sorry?
Dylan Silver (03:06)
How did you get into this space?
Belinda Prattis (03:07)
so I kind of stumbled into it. ⁓ I was a transaction coordinator for Creative Investors. And in fact, you guys interviewed one of my colleagues and friend, close friends, Chelsea Westover, a fantastic TC, about in September. And so she and I used to do the same thing. And she and I actually were regional leaders for the Northeast region for top tier TC. And we had
two guests on to talk about cost segregation. One of them was a friend of mine and that friend of mine said, you know, you’re really passionate about teaching investors the ins and outs of things, especially new investors. really think that cost seg is something else that you could kind of put in your toolbox and teach them. And so that’s how I came about. And then Paul and I met when he was giving a presentation here in Albuquerque. ⁓ And we’ve been tag teaming ever since.
Dylan Silver (04:47)
I want to ask both of you all about the cost seg space and Paul we were talking a little bit before hopping on here. You know there’s so many use cases for cost seg. I come from the background of working with the stress property, working with with fix and flippers and the like. ⁓ But I’ve also had cost seg people on the show who do this you know on a much grander scale. You’re talking about multi-use commercial, medical office space and so on and so forth. When is a good time for someone to be looking at
classic.
Belinda Prattis (05:17)
Thank
Paul Correa (05:17)
Yeah, would think
the… and this is a misconception I think out there. know, some people think that the planets have to line up for this to make sense a certain way, but really everybody should be doing this who has acquired a building in the last 10, sometimes 15 years that is not planning on selling it that has a tax liability.
With the new 100 % bonus depreciation, we’re even seeing this work on small $100,000 rental properties too. And of course, on the bigger end, we get into the $100 million properties too, but there’s really very few people these days that would not benefit. And again, assuming those parameters are met, they’ve got a tax liability. They’re not flipping, they’re not planning on selling it, and they haven’t had it for…
Belinda Prattis (05:46)
this is true. Yeah, I’m actually helping someone right now with that.
Thank you.
Paul Correa (06:07)
25 years. As far as the building type, there’s really no building type that we haven’t helped. I mean, I’ve been involved in studies for charter schools, churches, post office buildings, that it’s been owned by a for-profit owner. So the building type is really kind of a detail that doesn’t even matter that much. mean, granted there’s different benefits that come out of different buildings.
Dylan Silver (06:22)
I won’t.
Belinda Prattis (06:30)
Yes.
Dylan Silver (06:30)
I want to ask you specifically about, mentioned a couple different asset classes, know, single family homes, you mentioned even like churches, know, office space, larger, you commercial. Is there a timeframe that folks have to start looking at this? Like, let’s say they bought the home five years ago, is it not too late for them to look at this?
Belinda Prattis (06:39)
airplane hangars.
It’s
not because.
Paul Correa (06:49)
No, it is
not too late. You can take that missed benefit in the current tax year without amending past returns. Either the building owners, CPA, or we for an added fee would do what’s called a 3115 change of depreciation method form. So that’s another misconception. was even CPAs that are not aware of that. You mentioned five years ago, that was 2020. That was the original 100 % bonus depreciation era.
So if somebody missed it, we can go back and grab that 100 % bonus benefit from 20 and apply it to the 2025 tax return. And by the way, you don’t have to have the study done in 25, you just need to do it before 25 is filed, which for some people could be October of 26.
Dylan Silver (07:27)
wow.
Belinda Prattis (07:37)
That’s
true. Go ahead.
Dylan Silver (07:38)
Right.
There’s a lot that goes into this space. when I talk about cause seg, I think a lot of people will look at this and they’ll be looking at tax strategies as well because they both go hand in hand, of course. That’s the primary benefit. I have this question for you, Belinda. In your background working in the transaction coordination space, did you ever come across folks who, or I imagine you did, who were not aware that they had access to
Belinda Prattis (07:51)
they do.
Dylan Silver (08:07)
these types of tools, but they really could have benefited in so many ways.
Belinda Prattis (08:11)
I would say nine out of ten investors that I worked with were not aware. And that’s a pretty alarming rate.
Dylan Silver (08:16)
Right, mean they’re effectively missing out on dollars ⁓ that are theirs. Do you think, and as you’ve had more experience in this space, do you think that it’s because of a lack of awareness for it or is it because people think that it wouldn’t apply to them?
Belinda Prattis (08:24)
Yes.
think it’s both of those things. And in addition, a third ⁓ factor would be misinformation that’s out there. ⁓ So I think it’s definitely becoming more one of those buzzwords that is going through, especially the creative investing community right now. ⁓ It’s one of those things like, I feel like I should know about this, but I don’t know. And who do I turn to to ask? Paul, you were about to say something.
Paul Correa (08:36)
I would… I’m sorry, go ahead, Belinda.
Dylan Silver (08:57)
Yeah.
Paul Correa (09:32)
Yeah, I mean, sometimes people know a little bit about it, some of which may or may not be accurate. But, you know, when people are confused, they just don’t do anything, right? from my experience, once people do this one time, they realize, you know, that’s a very simple process. It had a massive impact. It may have wiped out my 2025 tax liability. And then they do it routinely and they tell their friends about it, too. So that’s
Belinda Prattis (09:35)
Okay.
This is true.
Okay.
Paul Correa (10:01)
Yeah, I get a question sometimes people ask, well how come my CPA never told me about it? Which my response is, well you need to ask them that. But what I can tell you is the Journal of Accompanies says CPA should routinely be recommending this to their clients and their tremendous tax benefits. It’s always better to have a dollar and the use of it today than in 39 years when a dollar is going to be worth much less. So that’s kind of it.
Belinda Prattis (10:10)
Yeah.
very true.
Dylan Silver (10:28)
Yep.
Paul Correa (10:29)
in a nutshell the big real estate movers and shakers are all over this. The top four accounting firms they’ve got their own cost seg departments. But when it comes to the smaller investor, know there’s a lot of people that they start out in business with a let’s say an enrolled agent, a very simple guy, and then they get bigger but they still have the little accountant that is not telling them about this stuff. That’s kind of my observation.
Belinda Prattis (10:33)
Mm-hmm.
Dylan Silver (10:55)
I want to pivot a bit here and ask you about folks who may be thinking, how much is going to go into this? What’s the benefit that I’m going to get out of it? Is there a way to estimate your savings without having the full cost seg done? Or do you really have to commit to it? And then you were able to see, well, this is what I could potentially say.
Belinda Prattis (11:17)
No, we can absolutely run a.
Paul Correa (11:18)
Yeah, they’re not
going into this blindly with just some very basic information, which is property address cost basis when it was acquired. We can run an estimate. There’s no cost or obligation. And that’s based on a model of, let’s say, 10,000 apartment buildings that we’ve done. So that gives you pretty good ballpark idea of the benefit as well as the fee. If the numbers make sense and they want the money, we would get started. We take half the
Belinda Prattis (11:29)
Mm-hmm.
Yeah.
Paul Correa (11:45)
payment when we start we ask for whatever backup they have which could be an appraisal, could be a survey, it could be plans and get the cost basis less land. We send somebody out there to take pictures and from that point the building owner is out of the picture. Two to four weeks later we’re done with the report and when the CPA sets up the new depreciation schedule they just drop in our numbers.
Belinda Prattis (12:07)
Thank you.
Paul Correa (12:11)
In the unlikely event the IRS ever asks, where did you get the numbers? They show them the report and they go away. And by the way, we really do not have IRS issues. I think because of our sheer size, they know who we are and that we do it right. That’s not the low hanging fruit for them to make trouble. They almost would have to do another study on top of ours to dispute it.
Dylan Silver (12:28)
I want it.
I want to ask you specifically, and I’d like to get your perspective on this one as well, Belinda, in the developer space, when we’re talking about building ground up construction, new subdivisions, for instance, it makes sense immediately that, every developer should be doing some type of cost seg if they plan on holding the properties. Is that across the board? Are all developers doing this or are some developers missing the boat?
Belinda Prattis (12:51)
Yeah.
think in addition to cost seg, lot of developers can tap into the 179, right? Paul?
Paul Correa (13:03)
Yeah, that’s something that could benefit them also, right? But I mean, I would answer that question, and this is an across the board thing that they would want to take a serious look at, if they’re going to be holding that property.
Belinda Prattis (13:05)
huh. ⁓
Yes, so yes.
Yeah, especially if they’re holding it.
Dylan Silver (13:18)
I have been seeing more of that, which is interesting, because when I think of building out subdivisions, I think, you’ve got to have the ability, you’ve got to have some deep pockets to hold onto a subdivision. I’ve now spoken with a number of builders who are not national builders, that are very much regional, but they are looking at developing ⁓ either single-family homes or townhomes and holding onto them long-term, where it just seems like from an outsider looking in, hey, that’s
Belinda Prattis (13:44)
Yes.
Dylan Silver (13:47)
You need a cost seg for
that if you’re going to be holding on to that. I do want to pivot here a little bit and ask you specifically, maybe regionally, are there areas of the country where you’re seeing more interest in cost seg or is this across the board, across states, developers everywhere looking at cost seg?
Belinda Prattis (13:51)
Yeah.
Mm-hmm.
would say it’s everywhere.
Paul Correa (14:09)
There is no part
of the country that people want to overpay taxes. There are parts of the country that there’s a lot less knowledge. Just because, for instance, I operated in New Mexico for a while. I was the only guy there in the whole state, so there was less knowledge. You go to Denver, there was probably 10 providers that had boots on the ground.
Belinda Prattis (14:13)
Absolutely.
Dylan Silver (14:14)
Hey
Belinda Prattis (14:30)
Mm-hmm.
Right. And like being in New Mexico now, I’m the only one here now.
Paul Correa (14:37)
And I’m blended, you have an opinion?
Dylan Silver (14:37)
I wanna-
Paul Correa (14:40)
Yeah.
Belinda Prattis (14:41)
Good.
Dylan Silver (15:22)
I want to ask you specifically, Paul, you you mentioned you’ve been doing this for quite some time. So you’ve seen, you know, it grow in popularity. And I still think, you know, it could grow some more so that every developer, every person that’s involved in real estate transactions is aware of it. When you were just getting started in this space, what was cost-set like? you know, when you were explaining what it is to people, were they aware of it? Or was it truly met with some level of like, hey, I didn’t know that’s a thing?
Paul Correa (15:51)
Yeah, that was the big challenge back then. Even the CPAs didn’t know about it, which, you know, that doesn’t mean they’re bad CPAs, but there’s been an average of one change in the tax code a day the last 10 years. So it’s very hard for them to keep up. Although I do think they should at least be willing to be educated. But yeah, no, that was their reaction. You know, this is risky. It’s going to trigger an audit.
you know, are you sure? But this is in the IRS tax code. This is an IRS black and white issue. If you go to the audit technique guide on cost segregation, they spell it out and they list, I think it’s nine methodologies and we use the engineering based approach, which is number one on their list and the one they prefer and like to see the most. So there are…
are lesser methodologies you want to watch out for, the do-it-yourself ones come to mind. That’s basically an estimate that’s at much higher risk for an audit and is not going to get the full benefit. So that’s something, unfortunately, people, know, the only thing they look at is the price tag, but as one of my CPA partners said, shortcuts are the long
Belinda Prattis (16:52)
Yeah.
Indeed.
Dylan Silver (17:03)
I want to ask you maybe a granular question about cost seg. ⁓ When you’re talking about an engineer-based analysis versus do it yourself, what are the steps of cost seg analysis? What’s the typical duration, let’s say for a small multifamily apartment complex or something like this, ⁓ like 16 units, just throwing out ballpark figures. What’s the general process like?
Belinda Prattis (17:29)
So.
Paul Correa (17:30)
What would our study process be like? ⁓
Dylan Silver (17:32)
Yeah.
Paul Correa (17:32)
Belinda, go ahead.
Belinda Prattis (17:33)
I was going to say, you know, hopefully you’ve gotten an estimate from us so you know kind of a ballpark of how much you’re going to save. But like Paul said earlier, we would send out someone to take photos of your facilities and ⁓ either get from you a site plan, maybe some blueprints. Like right now I’m working with someone. What did we get from her? We got her tax assessment and her depreciation schedule from last year. Right. And then the engineering team will
engineer the building into its depreciable components and so there are several buckets some things depreciated five years some things at seven some things at 15 and what they’re trying to figure out is what in your buildings in these 16 units fall into which buckets right so these are the things that depreciate much faster than than everything else let’s say and so the duration you are asking right now it’s about two to four weeks come mid-December
Dylan Silver (18:25)
you
Belinda Prattis (18:28)
for the folks who are trying to get it done before the end of the year, it’ll probably take a bit longer. And then in January, it’s probably, you’re looking at about five to six weeks completion because then everybody’s wanting to get their cost-sector study done before their taxes.
Dylan Silver (18:42)
Got it, got it. Thank you for that information. We are coming up on time here, Belinda and Paul. Where can folks go to reach out to you? How can they ⁓ learn more about CSSI? How can folks get in contact with you?
Belinda Prattis (18:56)
Sure, so I ⁓ will share my and Paul’s information. Here’s Paul’s information. I’m not sure how much of this you’re seeing. There you go. All right. And… ⁓
Dylan Silver (19:15)
Yeah, we got it. We see it, ⁓
Belinda Prattis (19:19)
mine and that’s that’s really it so you said we’re coming up on time right
Can you hear me?
Paul Correa (19:24)
Pardon me, did you get? Yeah.
Dylan Silver (19:28)
Yes, we saw that. saw that. Yes, we are coming up on time. ⁓ Thank you both for coming on the show here today. Belinda, Paul, ⁓ thank you so much for coming on the show here.
Belinda Prattis (19:32)
Okay.
Thank
you for having us.
Paul Correa (19:41)
Thank you,
